Bracing for the loss of some debit transactions as a result of new Federal Reserve rules requiring debit cards to carry at least two card network brands, Visa Inc. next year plans to ramp up a series of incentives for merchants and acquirers, Joe Saunders, Visa chairman and CEO, told analysts Oct. 26.
The new debit-routing requirements go into effect April 1.
Visa on Jan. 2 will unveil new debit network card-processing fees that will go into effect April 1. As part of that initiative, Visa plans to make it attractive for merchants to process debit card purchases as PIN transactions as well as signature-based ones, Saunders told analysts during a conference call to discuss the company’s earnings from its fourth fiscal quarter ended Sept. 30.
The new regulations affect approximately 20% of Visa’s total revenue, and of that, signature debit contributes more than 75% of U.S. debit revenue, Saunders said.
“To address the pockets of debit revenue at risk as a result of the regulation, particularly revenues related to PIN debit, we are moving forward quickly with a program to incent routing decisions,” Saunders said, declining to provide specifics.
Visa “reminded clients” recently that it is “fully capable of facilitating both signature and PIN-debit transactions” over its VisaNet network, Saunders said, noting that the dual-processing capability is “an important competitive advantage and differentiator in the new environment.”
Saunders also defended Visa’s plans to compete in the emerging mobile-payments arena.
“No company is doing more than Visa to set the stage for broad adoption” of Near Field Communication-based mobile payments,” Saunders said, citing Visa’s mobile-wallet initiatives, including “Click to Buy,” “Touch to Buy” and “Tap to Buy.”
Visa in November plans to roll out an improved “Click to Buy” service, which consumers may use on mobile devices or home computers using only a user name and password at checkout. It also will add new loyalty features to the program next year, Saunders said.
Analysts during the call point to the consumer outcry against monthly debit fees that some banks are testing or have promised to introduce next year sparked by new Federal Reserve debit interchange fee limits that went into effect Oct. 1. Among the banks adding debit card fees is Bank of America Corp. (
Acknowledging that debit comprises the lion’s share of Visa’s card purchase and transaction volume in the U.S., Saunders told analysts he is not worried about Visa losing significant debit market share because of recent regulatory and market developments.
“I don't believe that anything that's happening is going to substantially alter the macro debit volume in the United States,” Saunders said. “I don't think (debit) is going to go away. Even the one fee that has been specifically announced is a flat fee. It doesn't make any difference–it's not upper-transaction fees or anything of that nature.”
But the combined effects of the recession plus new regulations is likely to cause “a lot more activity” in prepaid cards, Saunders said, noting Visa’s prepaid card growth is “very significant.”
Visa so far will leave merchants hanging on the nagging question of debit-interchange fees for small-ticket purchases. Merchants have complained that when the card networks recently set new debit-interchange rates in accordance with Fed regulations, the minimum cost for a debit transaction, about 24 cents, may cut substantially into profits on products whose price is only $1 or $2. The vending machine industry says the new debit-interchange price limits will decimate their profits (
“There were a series of events that occurred, and the end result was that small-ticket prices from both associations were raised to the cap of the Durbin legislation,” Saunders said, adding he is “not ready to comment on whether that is absolutely the right thing to do or not.”
Visa is “pretty confident that there is an answer somewhere on the continuum that will benefit both financial institutions, consumers, and merchants,” and he hopes they will reach it over a “reasonably short period of time,” Saunders said
Visa Inc. on Oct. 24 reported fiscal fourth-quarter net income of $880 million, up 13.7% from $774 million a year earlier. Operating revenue for the quarter ended Sept. 30 rose 14.3%, to $2.4 billion from $2.1 billion.
U.S. debit card purchase volume rose 8.3%, to $288 billion from $266 billion. Debit card purchase volume from regions outside the U.S. rose 39.3%, to $85 billion from $61 billion.
U.S. credit card purchase volume rose 10.1%, to $228 billion from $207 billion. Credit card volume from regions outside the U.S. rose 25.1%, to $369 billion from $295 billion.
Visa’s credit card purchase volume showed healthy gains, and data through October show continued growth, said Byron Pollitt, Visa chief financial officer. But most of the credit card growth Visa has seen in recent quarters has been from the affluent sector only, he said.
“As we enter fiscal 2012, it is worth noting that we have not yet seen any discernible broadening of the U.S. credit spending base beyond this affluent income group,” Pollitt said.
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